Germany in limbo after cliffhanger

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GERMANY'S knife-edge election result has produced confusion and
pressure on the economy as politicians weigh up the colourful
coalition options of Germany's political rainbow.

Sunday's closely fought general election left both Chancellor
Gerhard Schroeder and his conservative rival Angela Merkel claiming
victory after a result that was too narrow to give either a clear
majority in parliament.

That has opened the prospect of weeks of negotiations between
the six parties in parliament.

Hours after polls closed, the euro fell to a one-month low
against the dollar in Asia. European Commission President Jose
Manuel Barroso yesterday urged German leaders to resolve the
stalemate as quickly as possible.

Prolonged political haggling in the European Union's largest
economy could hinder EU-level decisions on reforms needed to revive
the bloc's stagnant economy and to lead it out of doldrums caused
by rejection of the EU's constitution.

"I think as president of the European Commission, I have a duty
on behalf of the European institutions to urge German political
leaders to come as soon as possible to a solution that is stable
for Europe," Mr Barroso said in the European Parliament.

The prospects of a power-sharing deal between the conservatives,
led by Angela Merkel, and the Social Democrats means her reforming
agenda will not get off the starting block. European markets were
expected to reflect the anxieties felt in Asia when they opened
yesterday.

Ms Merkel's opposition Christian Democrats appear to have
scratched out a narrow election victory over Gerhard Schroeder's
Social Democrats in Sunday's general election, but crucially failed
to secure the ruling majority they had sought.

The first official preliminary returns of the cliffhanger
election showed that the CDU and its Bavarian sister party, the
Christian Social Union, took 35.2 per cent of the vote while the
Social Democrats followed closely with 34.3 per cent.

Ms Merkel's preferred coalition partners, the free-market
liberal FDP, had a surprisingly good showing, grabbing 9.8 per cent
of the vote. The Left Party, an alliance of disgruntled Social
Democrats and former communists, came in at 8.7 per cent while the
Greens clinched 8.1 per cent.

According to the latest preliminary official count, the
conservatives are also the strongest faction in Parliament with 225
seats to the Social Democrats' 222.

Despite the failure of any single party or coalition to secure a
majority, both Mr Schroeder and Ms Merkel immediately insisted they
had each won a mandate to form the next government.

Ms Merkel said she had the upper hand and would negotiate with
all the major parties on creating a coalition. Pollsters had widely
predicted for weeks that the conservatives would clinch about 40
per cent of the vote, assuring them a smooth coast to victory along
with the FDP.

Chancellor Schroeder, 61, said his party, energised by a
come-from-behind result that beat most expectations, should be
proud of the result and that he would remain Chancellor.

He faces serious hurdles, however. The coalition government his
SPD formed with the Green party for seven years is no longer
possible. Experts say the only possibility would be a "traffic
light" coalition with the Social Democrats, Greens and the FDP.
With

REUTERS

LEFT, RIGHT, LEFT

If no majority government can be formed, a minority
government could rule, but that has never happened on the national
level in Germany.

Four possible governments:

■ RIGHT AND LEFT "Grand coalition"
between Angela Merkel's Christian Democrats and Gerhard Schroeder's
centre-left Social Democrats, with Ms Merkel as chancellor, or Mr
Schroeder if his party overtakes Ms Merkel's. The two sides have
some policy overlap.

■ ALL LEFT WING Coalition of Social
Democrats and Greens, who make up the present Government, plus the
new Left Party, made up of former East German communists and
renegade Social Democrats. Mr Schroeder ruled out this possibility
after the first projections.

■ LEFT WITH A BIT OF RIGHT The present
Government cuts a deal with the pro-business Free Democrats, dubbed
the "traffic lights".

■ RIGHT WITH A BIT OF LEFT Ms Merkel's
Christian Democrats join up with Free Democrats, with whom they
were unable to form a government alone, plus the Greens.